Government Falls Short of Small Business Contracting Goals

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.

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SBA Administrator Karen Mills says more contracts need to go to small firms.

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Small businesses nationwide won a record $96.8 billion in federal contracts last year, an increase of more than $3 billion over fiscal 2008, according to the U.S. Small Business Administration's most recent scorecard. However, it still wasn't enough to reach a goal set by Congress.

Small business contracts accounted for 21.9 percent of federal spending last year – up from 21.5 percent the year before. Congress set a goal of 23 percent goal.

"There was an increase in both dollars and contracting share for every small-business category," SBA Administrator Karen Mills said in a statement. "This represents real progress, but not enough. We must reaffirm our commitment to ensuring that the 23 percent [of all federal spending] goal is met and exceeded."

The work small businesses did included scientific research, technological support -- and even janitorial services.

By law, the government must keep tabs on its efforts to offer contracts to businesses in five categories: small businesses overall, women-owned small businesses, small disadvantaged businesses, service-disabled veteran-owned small businesses, and HUB Zone businesses, or those in historically underutilized business zones (economically distressed areas).

Of those categories, only one – small disadvantaged businesses – exceeded its goal for fiscal year 2009. Its contracts made up 7.6 percent of all federal funding in 2009, or $33.5 billion. The category's goal was 5 percent. "Disadvantaged" companies are those owned by people who have had economic disadvantages and are members of certain ethnic and racial groups.

Last year, the government awarded $16.3 billion in contracts (3.4 percent of federal spending) to small companies owned by women. That's $1.6 billion more than in 2008 but still short of the 5 percent goal.

The scorecard grades the efforts of 24 agencies. The overall federal government received a B.

The Energy, Agriculture and Veterans Affairs department – and the SBA itself – received top marks. The Office of Personnel Management, Agency for International Development, and the National Science Foundation earned failing grades.

In comments attached to the scorecard, poorly ranked agencies justified their low marks. The General Services Administration, which received a C, noted that its goal for small business contracts was 35.7 percent, much higher than that for the entire federal government. (27 percent of GSA contracts went to small businesses.) Just 8 percent of USAID's contract dollars went to small businesses – earning the agency a failing grade – but that's because the President's Emergency Plan for AIDS Relief required it to buy a lot of drugs, the agency said.

The American Small Business League, a California-based advocacy group that has previously accused the government of misrepresentation, challenged the SBA figures. According to the league's June analysis of the top 100 recipients of federal business contracts in fiscal 2009, some 65 percent of the money went to large companies that in some cases were members of the Fortune 500. Based on that sample, the proportion of contract dollars going to small business is closer to 5 percent, the league said Monday.